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Fitch Solutions Raises PHL Budget Deficit Forecast

PHILIPPINE STAR/ MICHAEL VARCAS

The PHILIPPINES’ budget deficit would likely remain well above the pre-pandemic average in 2022, even if the gap narrows thanks to a rebound in income, adding fiscal pressures to the next administration, said Fitch Solutions Country and Industry Research.

Fitch Solutions in a report on Wednesday said the 2022 ofIfcit would likely shrink to 7.9% of gross domestic product (GDP) from around 8.3% last year.

‘The rebound in income thanks to the economic recovery offset expansion again Iffiscal spending as the government seeks to accelerate economic recovery in 2022,” the think tank said.

Fitch Solutions raised the budget deficit forecast from the previous 7.8% of GDP for 2021 and 6.9% for 2022, noting that the country still faces risks from the pandemic’s threat to revenue.

“We believe that the Philippine government may come under pressure to expedite Iffiscal consolidation plans given the sharp rise in public debt levels during the pandemic,” Fitch said.

As incomes have plummeted during the pandemic, the country ofIfcit rose to 7.5% of GDP in 2020 from 3.4% a year earlier.

In the 11 months to November, the budget deficit reached 1,330 billion pesos, up 24.63 percent from 1,070 billion pesos in the same period last year.

Government economic managers have said that Ifthe budget gap could reach 8.2% of GDP for 2021, then 7.7% for this year.

Fitch Solutions said economic growth this year is likely to be stronger than in 2021 despite the threat from the Omicron variant of coronavirus disease 2019 (COVID-19).

“As such, as the budget continues to stimulate the economy, revenue growth should be such that the overall deficit narrows in 2022,” he added.

This year’s national budget of 5 trillion pesos is bigger than expected, Fitch Solutions said.

Spending would likely increase by 11.2% in 2022, compared to an expected 11% for 2021.

“Following the announcement that unspent funds from the 2021 budget could be spent in 2022, we anticipate this will increase overall spending for the year,” Fitch Solutions said.

Meanwhile, revenues are expected to rise 14% this year, from 7% in 2021, as the easing of containment measures further supports domestic activity and tax collection.

Revenue collection in the 11 months to November reached 2.7 trillion pesos, 5.99% more than last year, according to Treasury data.

Amid the country’s deteriorating fiscal situation during the pandemic, Fitch Solutions said the next president could face challenges if he or she prioritizes growth over large numbers.Ifconsolidation of cities.

The think tank expects the debt-to-GDP ratio to reach 69.2% in 2022. For comparison, the debt-to-GDP ratio was 63.1% in September last year.

“Government bond investors may become increasingly concerned about soaring public debt, especially if they think further increases in public debt are likely,” Fitch Solutions said. “In turn, this could lead to higher borrowing costs over the next few years as bondholders demand higher risk premiums.”

The think tank said the next president should also cut spending to reduce the deficit and maintain conIfnce, noting that this is a “tough” choice as the country needs infrastructure spending, education and health. – Jenina P. Ibanez